Learn More About Life Settlements

Learn More about Life Settlements

The roots of the Life Settlement industry took shape during the mid 1980s at the height of the AIDS epidemic. Patients diagnosed with AIDS had medical treatments available to them which were not covered by most medical insurance. In many cases these individuals owned a life insurance policy that they no longer needed or could no longer afford to pay for. These policies were sold for a cash settlement which allowed the insured to fund medical treatment. This transaction is known as a Viatical Settlement. A viatical settlement occurs when a person who is terminally ill with less than 24 months Life Expectancy sells their life insurance policy to a third party for a lump sum. The major issue that the viatical market faced was the fact that almost all of the insureds were AIDS patients and as medical advancements were made the life span of and AIDS patient changed dramatically.

A Life Settlement is the sale of an existing life insurance policy covering a person who is age 65 years or older. In most cases the insured is over the age of 70 and has at least one medical impairment but is not terminally ill. The policy owner is paid a lump sum in cash in exchange for the policy ownership just the same as a viatical settlement. By selling this unwanted or unneeded policy seniors can convert assets to cash and free themselves from future premium payments they may not be able to afford.

The legal basis for insurance settlements can be found in the 1911 Supreme Court Ruling: GRIGSBY v. RUSSELL, 222 U.S. 149 (1911).

This court ruling stated: "So far as reasonable safety permits, it is desirable to give life policies the ordinary characteristics of property. To deny the right to sell except to persons having such an interest is to diminish appreciably the value of the contract in the owners hands."

Chief Justice Oliver Wendell Holmes decision set forth the principal that the insurance settlement is based on today.